schildi
Well-Known Member
3718 and no text
Joined: Jan 14, 2011 1:38:58 GMT -5
Posts: 1,834
|
Post by schildi on May 20, 2024 11:44:14 GMT -5
Hi all! I am trying to come up with a tax strategy for early retirment, as I may be entering that very soon. Here is a very confusing thing that I discovered today, and maybe you guys can help me explain this? So I went to www.1040.com/estimate/ to run a few test cases, and numbers. Here is what I entered (left all other fields untouched): filing status: married, filing jointly age: 55/53 (me / spouse) wages: $35k qualified dividends: $0 long term cap gains: $20k
the result reported: AGI = $55k taxable income: $27,300 tax due = $733
So far, so good. probably makes sense. But here it comes: When I change the qualified dividends to $10,000, that changes the result to the following: AGI = $55k (same) taxable income: $27,300 (same)
tax due = $0
Yes, with an additional $10k in qualified dividends, the tax due is redued to zero from $733.
This doesn't make sense to me. Is this a glitch in their calculator? Or is there a good explanation for this?
|
|
MN-Investor
Well-Known Member
Joined: Dec 20, 2010 22:22:44 GMT -5
Posts: 1,966
Member is Online
|
Post by MN-Investor on May 20, 2024 13:00:02 GMT -5
Dinkytown.net is a fantastic site for many financial calculators including tax calculators. I strongly suggest dropping your numbers into their calculator. Qualifying dividends are taxed like long term capital gains. In your situation, they would be taxed at 0% so should not impact total taxes. www.dinkytown.net/java/1040-tax-calculator.html
|
|
|
Post by minnesotapaintlady on May 20, 2024 13:01:41 GMT -5
I played around with the calculator and don't get it either. It seemed to only reduce taxes when I put the capital gains under short-term. Long-term didn't change anything, so unless there is some kind of offset to STCG with qualified dividends I think the calculator has a bug.
|
|
schildi
Well-Known Member
3718 and no text
Joined: Jan 14, 2011 1:38:58 GMT -5
Posts: 1,834
|
Post by schildi on May 20, 2024 13:16:08 GMT -5
I played around with the calculator and don't get it either. It seemed to only reduce taxes when I put the capital gains under short-term. Long-term didn't change anything, so unless there is some kind of offset to STCG with qualified dividends I think the calculator has a bug. So you are getting the same results that I get, right?
|
|
schildi
Well-Known Member
3718 and no text
Joined: Jan 14, 2011 1:38:58 GMT -5
Posts: 1,834
|
Post by schildi on May 20, 2024 13:16:41 GMT -5
Dinkytown.net is a fantastic site for many financial calculators including tax calculators. I strongly suggest dropping your numbers into their calculator. Qualifying dividends are taxed like long term capital gains. In your situation, they would be taxed at 0% so should not impact total taxes. www.dinkytown.net/java/1040-tax-calculator.htmlThanks, I will play around with it tonight ...
|
|
|
Post by minnesotapaintlady on May 20, 2024 13:24:08 GMT -5
I played around with the calculator and don't get it either. It seemed to only reduce taxes when I put the capital gains under short-term. Long-term didn't change anything, so unless there is some kind of offset to STCG with qualified dividends I think the calculator has a bug. So you are getting the same results that I get, right? Yes, it's showing less tax due with qualified dividends added on.
|
|
schildi
Well-Known Member
3718 and no text
Joined: Jan 14, 2011 1:38:58 GMT -5
Posts: 1,834
|
Post by schildi on May 20, 2024 14:03:39 GMT -5
Dinkytown.net is a fantastic site for many financial calculators including tax calculators. I strongly suggest dropping your numbers into their calculator. Qualifying dividends are taxed like long term capital gains. In your situation, they would be taxed at 0% so should not impact total taxes. www.dinkytown.net/java/1040-tax-calculator.htmlThis calculator doesn't have the issue. It tells me to enter "ordinary dividends", which is total dividends, and can't be less than "qualified dividends". The 1040k.com calculator doesn't have that option, and I think that's where it goes south. It probably has an indirect calculation where it subtracts from your tax due when it sees qualified dividends, or something to that extend. I will now use dinkytown, seems to be the better calculator!
|
|
jeffreymo
Familiar Member
Joined: Jan 21, 2011 12:32:17 GMT -5
Posts: 969
|
Post by jeffreymo on May 20, 2024 15:38:59 GMT -5
I think it’s actually a -733, meaning you would receive a refund because your income level would qualify for a refundable credit. After adding the qualified dividends you still do not have a tax bill but the AGI disqualifies you from a refundable credit? Somewhat a guess because I don’t have a 1040 form in front of me at the moment.
|
|
jerseygirl
Junior Associate
Joined: May 13, 2018 7:43:08 GMT -5
Posts: 5,151
|
Post by jerseygirl on May 20, 2024 17:35:21 GMT -5
Doesn’t qualified refer to something like an IRA?
If so not dividends , only regular income
|
|
schildi
Well-Known Member
3718 and no text
Joined: Jan 14, 2011 1:38:58 GMT -5
Posts: 1,834
|
Post by schildi on May 20, 2024 18:11:20 GMT -5
Doesn’t qualified refer to something like an IRA? If so not dividends , only regular income Qualified dividends are treated the same as long term capital gains, meaning they are taxed at a lower rate than regular income (0%, 15% or 20%, depending on the total taxable income).
|
|
schildi
Well-Known Member
3718 and no text
Joined: Jan 14, 2011 1:38:58 GMT -5
Posts: 1,834
|
Post by schildi on May 20, 2024 18:17:31 GMT -5
I think it’s actually a -733, meaning you would receive a refund because your income level would qualify for a refundable credit. After adding the qualified dividends you still do not have a tax bill but the AGI disqualifies you from a refundable credit? Somewhat a guess because I don’t have a 1040 form in front of me at the moment. I don't think that's the case. Everything entered is an income, not a deduction or refund, and therefore there should be no refundable credit. It also clearly states that the $733 is the "balance due". Below is a copy and paste from 1040.com: Balance Due $733 AGI: $55,000 Taxable Income: $27,300 Total Tax: $733 I think it's a mistake on their website.
|
|